Sunday, May 20, 2007

Yellow Book class action settlement upheld

The lower court approved a settlement of a certified class action for false advertising against Yellow Book USA.This appeal involved challenges to the fairness of the settlement, the sufficiency of notice, and the counsel fee, all of which were rejected (with some fee modifications).

The underlying false advertising claims arose from Yellow Book’s representations about usage of its telephone directories from May 2002 to July 2004; plaintiffs allegedly paid more than they would have if they’d known the truth.The settlement provided for relief for approximately half a million customers, about three-fourths of which are current Yellow Book customers. Current customers were eligible for a transferable credit voucher for future advertising purchases, with a fourteen-month expiration period, of between $48 to $720, depending on the amount of advertising purchased during the class period. Former customers were eligible for the same credit vouchers, or for a lower cash payment of between $22 to $265. The parties estimated the total potential value of the proposed settlement at between $65.7 and $71.9 million.As of the fairness hearing in August 2005, over 96% of the class members had been contacted, and about 15% (81,000 people, including 65,000 current customers seeking over $11.2 million in advertising credits) had filed claims.

Plaintiff’s counsel justified the settlement with an economist’s prediction that success at trial would produce maximum damages of 11% of what class members paid for their advertising.The settlement provided each class member with 50-80% of that amount, as compared to the average 9-12% recovery of maximum possible damages in a typical class action settlement.Credit vouchers for current customers were reasonable given that Yellow Book retains 70% of its customers.

One set of objectors proposed that the settlement should be amended to remove the disparity between former and current customers by giving everyone the cash option; this wouldn’t hurt Yellow Book, they argued, because current satisfied customers would choose the higher-valued vouchers.The court found that the trial court hadn’t abused its discretion, given all the facts.Indeed, the court found that “the settlement credit may even be better than a cash rebate for this vast majority of current customers who have an ongoing, recurring business relationship with Yellow Book.”Comments: the trial court may not have abused its discretion, but there’s no doubt that the settlement would have been better for current customers if it had given them the cash option.Even setting aside the thirty percent of non-repeat customers (who might even be extra revenue for Yellow Book if they take the settlement credit and spend a little more on a new ad), continuing customers couldn’t be made worse off by being able to choose credit or a smaller amount of cash.So the court’s comparison is beside the point.

Separately, 15% redemption is a pretty high percentage for a coupon settlement. Perhaps that's because the average recipient was a business rather than an individual?

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